Peer-to-peer to become regulated

The government has announced that peer-to-peer is to become a regulated activity in the latest Financial Servics Bill. While other industries are resisting regulation, the leaders within the peer-to-peer industry, and consumers alike, have been pushing for greater government regulation.

This will help move peer-to-peer lending from what is sometimes regarded as a niche and unregulated activity to something that is a lot more mainstream. At a time when peer-to-peer lending is growing at around 70% per annum, with other financial services activity flat, we welcome this news and look forward to having an input in this process.

Following the Government's announcement this morning at the Peer-to-Peer Finance Policy Conference in London that it plans to regulate P2P lending, the Peer-to-Peer Finance Association has issued the following statement:

“This news represents a watershed moment for peer-to-peer lending. The Peer-to-Peer Finance Association has provided clarity and protection for consumers and businesses, but we have always strongly believed that introducing proportionate regulation was necessary to enable the sector to continue to flourish. We are committed to working closely with the Government and the Financial Conduct Authority over the coming months to build the right framework for our future.”

Responding to news today that the Government plans to include the regulation of peer-to-peer lending within the Financial Services Bill, Samir Desai, CEO and co-founder of Funding Circle said:

“We welcome this announcement and look forward to working closely with the Government and the Financial Conduct Authority over the coming months to help build a regulatory blueprint”.

“The economy continues to face some very tough times, but peer-to-peer lending has prospered over the last two years and established itself as the credible alternative to the banks.”

“At a time when bank lending continues to remain flat, Funding Circle is helping thousands of British people to earn inflation-beating returns by lending money directly to growing businesses fizzing with ideas, energy and ambition”.

The Government’s decision to introduce formal regulation is another example of the progress of peer-to-peer lending. Since Funding Circle launched in August 2010, peer-to-peer lending has more than tripled.

Funding Circle is the UK’s largest online marketplace where people directly lend money to small businesses in the UK. Since launching, more than 20,000 British people have joined, helping to lend approximately £65 million to businesses. Funding Circle is now helping to lend approximately £7 million a month to businesses.

We believe the decision to give peer-to-peer a regulatory framework is a good one. It is what we at RateSetter, together with the Peer to Peer Finance Association, have been calling for. It vindicates our decision to work together as an industry and voluntarily pursue a code of self-regulation and it sends a signal that the Government recognises the growing relevance and scale of peer-to-peer.

The regulator's mandate is to ensure regulated firms conduct themselves in the right manner and to offer appropriate protection to consumers - we at RateSetter would like to think we have acted in that spirit from the day we set up. The regulator will have a new mandate as well: to promote competition. Given this focus on competition, it is no surprise that the Government welcomes peer-to-peer which is bringing fresh choice for consumers and businesses.

The process starts from here. Over the next 18 months there will be a consultation period and engagement between the industry and the law-makers. The Government has emphasized that regulation should be proportionate - there to give appropriate protection, not to stifle. We at RateSetter look forward to working with the regulator and hope this signal of support from the Government gives the many thousands of RateSetters increased confidence in the future of peer-to-peer.

FundingKnight has been talking to the FSA for several months and is well advanced with its application to become FSA regulated for those parts of its activity that fall within the FSA’s regime.

Rather than simply campaign for regulation, FundingKnight took the view that some of P2Ps current processes already fell within the regulatory regime and applied on that basis. We hope to be the first regulated P2P Lender.

FundingKnight CEO, Graeme Marshall, commented:

“FundingKnight welcomes the prospect of regulation of crowdlending / peer to business lending. It may be that the news this week relates more to pure peer to peer lending and the extraordinary rates that are being charged to some individual borrowers but, regardless, some clarification and rules would be welcome.

Whereas FundingKnight believes that although matching lenders with business borrowers does not in itself fall to be regulated under the current rules, there are many peripheral activities that are less clear and so Government clarification and regulation would be welcomed. This will also assist with the setting of standards for this new and exciting activity. FundingKnight is seeking authorization for those of its activities that are covered by the Financial Services Authority.

FundingKnight has a team well experienced in financial markets who collectively believe that regulation of this industry will help crowdlending to become recognized as a new model for lenders and borrowers to be matched, using the power of an online marketplace. We look forward to participating fully in discussions with the FSA and Treasury concerning forthcoming regulation.”

Whilst we’re not claiming that our discussions with the FSA prompted the Treasury’s response, we’re glad to see that the move towards regulation is now gaining momentum.

1 comment

You can read FundingKnight's positive response to regulation http://blog.fundingknight.com/2012/12/07/fsa-to-regulate-peer-to-peer-lending-crowdlending-gets-a-boost/
We welcomed today's announcement, especially since we've already been talking to the FSA about regulating certain parts of our business and are well advanced in the process, which should hopefully make us the first regulated P2P Lender in the UK.